Can direct costing replace absorption costing in the aluminum extrusion industry?

Publication Date


Document Type


First Advisor

Avery, Clarence G.

Degree Name

M.S. (Master of Science)

Legacy Department

Department of Education and Administrative Services


Aluminum industry and trade--United States; Cost accounting


The primary purpose of the study was to determine the potential which a direct costing system might offer as a replacement of an absorption costing system in the aluminum extrusion industry. This specific industry was used as an example because a great amount of detail was required in order to make a determination of a type of cost reporting system. To attempt to generalize by using manufacturing industries broadly for comparisons of systems would have been virtually meaningless in this study. Sub problems relating to specific conversion of cost accounting methods and advantages or disadvantages under a direct costing system were secondary questions. Methods used in gathering data for the thesis included research of accounting textbooks, periodicals, and other authoritative documents; informal interviews with management, both accounting and non-accounting, employed in the aluminum extrusion industry; and personal experience in the aluminum extrusion industry. The fictitious company which is referred to as Extrusions, Inc. is an authentic replica of an actual company in many respects. The sales and profit figures, however, have no relationship to the actual corporation. The study ultimately determined some specific advantages and disadvantages which are present under a direct costing system as it could be used in the aluminum extrusion industry. The thesis would be of considerable assistance to the management of an aluminum extrusion business which might be considering possible improvements in its methods of translating cost accounting reports to members of its management team. A most important problem in the industry and in many other manufacturing businesses is the problem of complete comprehension and interpretation of profit and loss reports as submitted by their accounting departments. Better decisions influencing profitability can be made only if a full understanding of accurate cost statements is present. The potential problems in converting to a direct cost system were covered in Chapter II. Chapter III considered problems concerning accounting theory as applied to the direct costing principles. Although there are a considerable number of areas, particularly concerning questions of accounting theory, which direct costing seems to violate, its application in the aluminum extrusion industry could be acceptable and advantageous. The final decision on converting would have to come from individual company management.


Includes bibliographical references (leaf 64)


ix, 80 pages




Northern Illinois University

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